Hantoo Asset Management's Covered Call ACE ETF 3 Types Surpass 100 Billion KRW in Net Asset Value

Korea Investment Trust Management announced on the 31st that the net asset value of three covered call exchange-traded funds (ETFs) listed in April this year has surpassed 100 billion KRW.

The three covered call ETFs listed by Korea Investment Trust Management are △ ACE US 500 15% Premium Distribution (Synthetic) ETF △ ACE US Semiconductor 15% Premium Distribution (Synthetic) ETF △ ACE US Big Tech 7+ 15% Premium Distribution (Synthetic) ETF. The combined net asset value of the ACE 15% Premium Distribution series exceeded 100 billion KRW on the 28th (102.5 billion KRW), and as of the 30th, the net asset values of each product were 42.4 billion KRW, 29.7 billion KRW, and 41.0 billion KRW respectively (total net asset value 113.1 billion KRW).

The ACE 15% Premium Distribution series is characterized by setting an annual target distribution rate of 15%. Korea Investment Trust Management’s strategy to achieve this high target distribution rate is the use of zero-date (0DTE) out-of-the-money (OTM) 1% options. Korea Investment Trust Management is the first in Korea to launch covered call ETFs using zero-date options, increasing the annual target distribution rate through 0DTE options that mature within 24 hours and OTM options that partially track market performance.

Typically, option premiums tend to be larger the longer the maturity, but Korea Investment Trust Management’s analysis of past data (from November 2022 to November 2023) showed that the total premiums received daily were higher than the monthly option premiums over the same period. Additionally, through the OTM 1% options, the portfolio performance can reflect up to 1% daily returns of the underlying assets in addition to the call option premiums.

Another feature of the ACE 15% Premium Distribution series is the 'mid-month distribution.' Unlike most monthly dividend products listed domestically that pay dividends at the beginning of the following month based on the end of the month, the three ACE ETFs pay dividends around the 15th of each month. This reflects the demand from investors who want to generate stable cash flow even during the month.

As a result of the combination of a high annual target distribution rate and mid-month distribution, individual investors have been steadily net buying the ACE 15% Premium Distribution series. According to the Korea Exchange, the cumulative net buying amount by individual investors for the three combined products reached 76.6 billion KRW. In particular, the ACE US 500 15% Premium Distribution (Synthetic) ETF has seen net buying from individual investors every trading day since its listing.

Nam Yong-su, Head of ETF Management at Korea Investment Trust Management, explained, "The ACE 15% Premium Distribution series is characterized by using OTM covered calls to complement the limitations of the traditional covered call strategy, which is difficult to track indices," adding, "It has the advantage of securing some upside potential of the underlying assets compared to at-the-money (ATM) options."

He continued, "It is important to note that covered call ETFs can incur losses if the decline in the underlying assets exceeds the option premiums," emphasizing, "The ACE 15% Premium Distribution series was selected with this in mind, choosing underlying assets that trend upward (large-cap US companies, US semiconductor companies, US big tech companies)."

This content was produced with the assistance of AI translation services.